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Tidewater to Buy GulfMark, Form Combined Entity Worth $1.25B

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Offshore services provider, Tidewater Inc TDW has proposed to buy smaller rival — GulfMark Offshore, Inc GLF. The move is expected to create significant synergies and growth prospects as the offshore support vessel (OSV) sector continues to revive with the recovery in oil prices. The combination is anticipated to conclude in the fourth quarter of 2018.

Payment Terms

Per the agreement, Tidewater will purchase GulfMark by paying about $340 million to create a combined company worth about $1.25 billion in an all-stock deal. GulfMark’s shareholders will get 1.100 shares of Tidewater common stock for each share. Subject to Jones Act restrictions on maximum ownership of shares by non-U.S. citizens, GulfMark noteholder warrant will be automatically changed into the right to receive 1.100 Tidewater shares.

Post the completion of the deal, the GulfMark security holders will jointly hold 27% ownership of the combined company or 26% on a fully-diluted basis.

Benefits of the Deal

The combined company will possess the industry’s largest fleet as well as extensive coverage globally in the OSV sector. It will operate 102 Tier 1 vessels, of which 20 are stacked currently, with an average age of about 6.5 years. The reactivation of the stacked vessels is projected to generate an additional annual vessel operating margin of $32 million.

Transaction-related cost synergies of about $30 million are expected to be realized by the fourth quarter of 2019 from the deal. Other benefits include synergies through improved vessel utilization, with future pricing improvements mainly driven by a recovery in demand. Increased cash flows and extensive operating footprint of the combined company may help it in getting capital on more attractive terms.

The combined company will function under the Tidewater brand and will be managed by CEO John Rynd. On the closure of the transaction, the company’s board of directors seats will be increased to ten seats by adding three directors chosen by GulfMark.

GulfMark’s existing debt of $100 million is also expected to be repaid, simultaneous with the closure. On a proforma basis, Tidewater will maintain its pro forma net debt of about $100 million and pro forma available liquidity in excess of $300 million.

Other Recent Consolidations

With the recovery in oil prices, we are witnessing consolidation in the industry. In 2017, offshore rig contractor Ensco Plc ESV acquired smaller rival Atwood Oceanics for $839 million. In another transaction, world’s biggest drilling rig operator, Transocean Ltd RIG, purchased Norway’s Songa Offshore at a value of $1.1 billion.

Price Performance

In the past three months, Tidewater’s shares have lost 6.5% against the industry’s rise of 8.4%.


Zacks Rank

GulfMark Offshore currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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